British American Tobacco (BAT) is one of the ‘big three’ global cigarette producers, headquartered in the UK and listed in the FTSE 100 index of the London Stock Exchange.
Its cigarette brands include Dunhill, Camel and Rothmans, as well as Vuse, glo and Velo in next-generation products. The company operates in over 175 markets, including the US, UK, Canada, France and Germany.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, comments: “Investors have turned towards companies that have sticky revenue streams and revenue doesn’t get more reliable than tobacco.”
“That comes with offering an addictive product and also means that BAT has been able to pass on rising costs to customers without seeing volumes drop to unacceptable levels.”
The company is also strongly cash-generative, helping to fund a £2 billion share buy-back in 2022, and is currently trading on a dividend yield of 8%.
However, it’s been a mixed bag in terms of BAT’s recent share price performance, rising by 25% to hit a four-year high of over £36 in mid-2022, before falling to its current level.
Ms Lund-Yates adds: “There are social risks associated with investing in tobacco, not least that the sector is excluded from some institutional products. The risk of regulators cracking down on new products is also worth being aware of.
“The ongoing decline in smoking volumes is also a reason behind BAT’s low valuation, which reflects the long-term risk with the industry.”